Manufacturing traditionally has been organized around a build-to-plan (BTP) or build-to-forecast (BTF) process. A common implementation of a BTP process is the “machine-type model” system. In these systems, there is a set of end products, commonly referred to as MTMs. Demand forecasts over a future planning horizon are generated for each MTM, and updated periodically for each planning cycle, typically, a weekly cycle. A “materials requirements planning” (MRP) type explosion technique is then used to determine the requirements for the components over the planning horizon, based on the bill-of-materials (BOM) structure of each end product. Because of the random variation involved in demand forecasts, safety stock is usually kept for each end product, as well as at each component level, in order to meet a desirable customer service level. However, holding finished goods inventory for any length of time is very costly, particularly in the computer manufacturing business, where product life cycle is measured in months and price reduction takes place almost every other week.
Inventory control software has been developed to compliment the MTM manufacturing processes, which typically rely heavily on sales forecasts. One problem with these systems, however, is that these forecasts are inherently uncertain. Because the risk of under-estimating demand is lower than over-estimating demand, the most prudent manufacturers compensate by planning all elements to the ‘high side’ to protect potential revenue. However, these overstated forecasts usually result in excess inventory levels and unnecessary scrap costs.
Without a way to more effectively manage assemblies and account for components in inventory, the manufacturing industry will continue to suffer from less efficient ways of handling existing inventory in fulfilling new orders.